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Corporate Sustainability and Shareholder
WealthEvidence from British Companies and
Lessons from the Crisis
Fernando Gmez-Bezares 1 , Wojciech Przychodzen 1 and Justyna Przychodzen 2, *
1 Deusto Business School, University of Deusto, 48014 Bilbao, Spain; (F.G.-B.); or (W.P.)
2 Laureate Online Education, 1101 BH Amsterdam, The Netherlands
* Correspondence:; Tel.: +34-944-361-321

Academic Editor: Giuseppe Ioppolo

Received: 27 January 2016; Accepted: 10 March 2016; Published: 16 March 2016

Abstract: This study examines the impact of corporate sustainability (CS) on stock market returns
for FTSE 350 companies over the period 20062012. We find that an investment strategy that bought
shares in companies with balanced financial, social, and environmental activities would have earned
an annual four-factor alpha for a value-weighted portfolio of 3.54% per year during the sample period
and 2.98% above industry benchmarks. In addition, we find that CS is negatively correlated with
stock return volatility, and investing in companies with CS not only generates higher returns during
peak phases, but also diminishes shareholders losses during bear phases. We have also carried out
an additional, out-of-the-sample analysis for the years 20132015 which confirmed our results.

Keywords: corporate financial performance; corporate sustainability; shareholder wealth; socially

responsible investing; sustainable corporate finance

1. Introduction
In recent years, sustainable oriented activities have become increasingly important for firms,
customers, employees, the financial community, regulators, policymakers, and non-governmental
organizations (NGOs). According to a recent survey, 93% of CEOs regard sustainability as important, or
very important, to the future success of their companies; 96% believe sustainability issues should be fully
integrated into the strategy and operations of a company; and 73% see this as a way of strengthening their
brand, trust, reputation, and financial performance [1]. Ninety-five percent of the 250 largest companies
in the world now report on their corporate social responsibility (CSR) activities [2]. The Global Reporting
Initiative (GRI) attempts to provide voluntary guidance for corporations that generate stand-alone
sustainability reports. Almost 1200 institutional investors from around the world have signed the
Principles for Responsible Investment (PRI) agreement, which aims to understand the implications of
business sustainability and support signatories in incorporating environmental, social, and governance
(ESG) issues in their investment decision-making and ownership practices [3]. Stock market data show
that sustainable investments reached US$13.6 trillion globally by 31 December 2011, with Europes share
at 64.5% [4]. Assets engaged in sustainable and responsible investing practices currently represent 27.7%
of all assets under management in Europe [5] and 11.3% in the US [6].
In this paper, we introduce a less touched than CSR or responsible investment topic, namely
corporate sustainability. A sustainable company can be seen as a business unit that considers
its long-term health as a combination of the proper management of all major areas of its activities
(e.g., financial, social, and environmental) at the same time [7]. Corporate sustainability implies the
creation of long-term shareholder wealth by adopting sustainable development into business strategy and
operations, which is presented in the form of self-generated, stakeholder-engaged, and independently

Sustainability 2016, 8, 276; doi:10.3390/su8030276

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verified reporting. Thus, CSR can be regarded as a sub-area of CS, since it includes mostly short-term
activities in which shareholder wealth is not a critical factor [8]. Furthermore, the balance between social,
environmental, and financial goals is an intermediate stage in CSR and the ultimate goal in CS [9].
Various reasons have been given for the growing interest in sustainability issues in the business
world. These include:

(1) an increase in the productivity of a firms resources [10] and savings due to a reduced amount of
waste [11];
(2) the elimination of non-effective processes [12];
(3) a reduction of required inputs and compliance and liability costs [13];
(4) higher economic value of products or services due to consumer demand for green and socially
responsible goods [1416];
(5) less public and community pressure [17];
(6) revenue enhancement by attracting and retaining employees [18,19].

All beyond-compliance, sustainability-oriented activities should enable a firm to build competitive

advantage. An obvious research question arises from this: Are the above activities connected to any
benefits for shareholders? If so, are the achievable gains from them in terms of increased wealth
sufficient to justify these activities?
The relationship between sustainability-oriented activities and financial performance carries
considerable potential importance for managers and investors. Although numerous studies have
empirically examined the above connection, they have not addressed the issue of the combination of the
influence of increased social and environmental performance on shareholder value and the mediating
effect of the current global financial crisis (GFC). If corporate sustainability has wealth-protective
effects that manifest during stock market busts, then it would make sustainable companies stocks
highly desirable investment assets.
This paper sets out to address this problem by examining the simultaneous impact of the combined
proper management of all major areas of firms activities (e.g., financial, social, and environmental)
on its stock market performance for a panel data sample of FTSE 350 companies in the years
20062012. These activities were analyzed based on content analysis of voluntary corporate social and
environmental, as well as obligatory financial disclosures. The above approach examines whether,
and how, a firms multidimensional approach to the sustainable development concept, incorporating
social, environmental, and economic issues, simultaneously relates to various aspects of shareholder
wealth creation during current financial and economic crisis and its aftermath. In particular, this paper
addresses the following questions: Does a multidimensional approach to sustainable development
issues during economic slowdowns affect a companys stock market returns and their volatility? Does
the incorporation of a proper mix of voluntary beyond-compliance sustainability-oriented activities
influence the level of equity price resistance to a stock market crash?
Our results consistently indicate that firms with CS enhance their long-term efficiency, which
ultimately results in an overall increase in shareholder wealth. The results also show a higher resistance
to stock market crash among companies meeting our criteria of corporate sustainability.
This study is motivated by several considerations and makes several potential contributions.
First, it contributes to the literature on the link between corporate social and financial performance by
developing a new method for assessing corporate sustainability. It also adds to the debate surrounding
the possible effects of balanced financial, social, and environmental activities presented in the form
of self-generated, voluntary reporting. Second, the results of the study showing that sustainable
firms generate superior long-term returns may be useful to investors in their deliberations on ways to
achieve additional returns by holding well-diversified portfolios during a GFC.
The study is structured as follows: first an overview of the literature on the link between corporate
social performance and financial performance will be presented. Second, the theory on the concept of
corporate sustainability will be provided and hypotheses developed. Next, the results of the empirical
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study will be presented. Finally, the key findings will be discussed, conclusions drawn and the
limitations outlined.

2. Corporate Social Performance and Financial Performance: the Existing Evidence

The academic literature on the link between sustainable development strategies and firm
performance is fragmented. It tends to focus on a single aspect of sustainability, either the social,
environmental, or financial aspect, rather than a balance between them and the companys relationship
with various dimensions of profitability and shareholder gains. Previous studies that have attempted
to relate increasing social and environmental performance to financial performance have also yielded
conflicting results, which makes it extremely difficult to draw any general conclusions.
Hillman and Kelm [20] report that proper management of relationships with primary stakeholders
(customers, employees, local communities, and capital providers) is directly tied to additional value
creation, while active participation in secondary social issues may not lead to the above result. Gardberg
and Fombrun [21] and Scholtens and Zhou [22] suggest that only certain types of CSR activities,
reflecting a balance between legitimation and differentiation, can generate shareholder wealth.
Harrison et al. [23] report that a nuanced understanding of stakeholders needs increases stakeholders
willingness to cooperate with a firm, thus enhancing its growth prospects and competitiveness.
Artiach et al. [24] propose that the relation between social responsibility and financial performance is
also sensitive to the specification of proxy for profitability.
Different aspects of corporate social performance seem to be associated in a complex manner
with shareholder wealth creation. This is probably why Margolis and Elfenbien [25], in their survey
of management literature, found only a very small positive correlation between sound corporate
social behavior and good financial results. Some studies [2628] even suggested that CSR activities
might adversely affect financial results through their detrimental influence on future cash flows,
which would thus impose a direct cost on shareholders. Existing meta-analysis studies suggest
measurement methodology as an important casual variable behind the great variety of results regarding
the relation social-financial performance [29,30]. Particularly, the sampling and measurement errors
along with stakeholders mismatch are three possible sources of cross-study variation of correlations [30].
Voluntary environmental over-compliance and better environmental reputation can also affect financial
performance in a complex and ambiguous way [17]. Aragon-Correa et al. [31] report that firms
with the most proactive environmental practices, requiring the complex coordination of several
human and technical skills and heterogeneous resources, exhibited a significantly positive financial
performance. Derwall et al. [32] used a firms eco-efficiency indicator as a selection criterion and
constructed different portfolios with high- and low-ranked companies. The authors found a positive
relationship between eco-efficiency and stock market performance. Graham et al. [33] are also among
the proponents of a win-win environmental management paradigm. They argue that accurate
voluntary environmental disclosures reduce companies information risk and the weighted average cost
of capital. Clarkson et al. [34] provide evidence those companies engaging more deeply in voluntary
disclosure of environmental information report improvements in environmental performance. This, in
turn, increases the probability of obtaining external rewards for environmentally oriented activities,
which can be positively related to stock market returns [35].
On the other hand, Jones et al. [36] report that environmental disclosure is negatively associated with
longer-term market valuation. Zaho [37] notes that environmental investments appear to conflict with
maximization of shareholder value. The results of the statistical analysis used in the above study indicate
that the registration of ISO 14001 environmental management systems has led to lower profitability.
Fisher-Vanden and Thorburn [38] also provide evidence on the negative effects of voluntary corporate
environmental initiatives on shareholder wealth. They suggest companies announcing membership in
environmental programs experience significantly negative abnormal stock returns.
Both approaches presented above highlight the selectiveness of the market in reacting to
environmental performance and difficulties encountered with the profitable inclusion of environmental
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aspects into corporate strategy and decision-making processes. There seems to be a necessity to
incorporate a proper combination of different types of activities, instead of simply maximizing the
intensity of any existing environmental protection per se [3941].
Sustainability in the discipline of corporate finance is a definitely less-established concept.
Although this area is relatively new, the concept has attracted a growing body of literature.
Sustainability is often interpreted as a financial policy that cares for future generations [42]. This single
corporate objective does not say anything about enhancing profits and shareholder gains in the long
term [43]. Sustainability in finance definitely requires a multidimensional approach. This finding
is reflected in Soppes [44,45] theory, which defines sustainable finance as a financial policy that
strives for triple bottom-line performance measurements with human actors that opt to maximize
multidimensional preference functions.
In a related theoretical work, Johnsen [46] suggested that sustainability in corporate finance is
strictly connected to socially responsible investing (SRI). It can be defined as a synthesis of conventional
and sustainable investment optimization, aimed at achievement of superior social and environmental
performance while maintaining the financial excess return [47]. The existing studies do not demonstrate
unequivocally that SRI have a positive impact on shareholder wealth [48,49]. On the one hand, Lo and
Sheu [50] report that companies with remarkable sustainable development strategies, appreciated
by their inclusion to the Dow Jones Sustainability Index, are rewarded by investors with a higher
stock market valuation. On the other hand, Lopez et al. [51] showed that these companies are
actually penalized by the market with negative performance. The most important problem is the
multidimensional approach to socially responsible investment activities, which complicates financial
modeling and results in many methodological difficulties.
Different results from the above-mentioned empirical studies show the difficulties in testing the
relationship between a companys social performance and its financial performance. These difficulties
can be attributed mainly to the wide range of CSR indicators applied and the methodological
approaches. Apart from that, if investors are to penalize or award firms for being socially and
environmentally oriented, such activities must be available to the public in the form of self-generated
reporting or third party analyses [52]. Furthermore, independent external actors must verify the
presented engagement to ensure a minimum level of credibility and unselfishness. This raises the
issue of social and environmental reporting and its possible influence on shareholder wealth [53].
The existing literature on the above matter is largely inconclusive [54].
Despite such heightened interest in the literature concerning possible relations between various
aspects of corporate social, and financial performance, only a few studies have addressed the influence
of exogenous economic crises as mediating factors with regard to the above. Jones et al. [55] found
that firms strong reputation for CSR results in higher resistance to valuation losses during stock
market plunges than other, lower-reputation companies. Schnietz and Epstein [56] observed the same
regularity. In addition, Godfrey et al. [57] report that participation in CSR activities aimed at firms
secondary stakeholders, who can influence their primary counterparts, creates a form of goodwill
that preserves financial performance in times of negative external events. Although the above studies
focus on combining sustainability issues, shareholder value, and crises, they do not cover more recent
developments, especially the current global financial crisis and its aftermath.
Our study seeks to address a number of substantive limitations of previous works by developing
a new method for assessing corporate sustainability as a multidimensional concept, along with each
of its major components, and provide an answer as to whether it can lead to additional stock market
gains during the current GFC.

3. Theoretical Framework and Development of Hypotheses

The steady increase in sustainability-oriented activities over the past decade suggests managers
are beginning to see a business case for corporate sustainability. A company that is consistently socially,
environmentally, and financially responsible should ultimately obtain tangible benefits from such
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responsibility in the form of: cost reductions through decreased regulatory or litigation risk and higher
material and energy efficiency; more stable relations with the financial community and stakeholders;
increased productivity through attracting and retaining good employees; more effective business
and financial planning; enhanced revenues through attaining socially conscious consumers, access to
financial capital from sustainability-oriented investors or process innovation [5860]. Thus, corporate
sustainability has the potential to deliver a broad range of new sources of competitive advantage that
affect value creation in both the short term and longer term [61]. In order to serve the above purpose,
CS must be consistent with a firms strategy, be financially sustainable, and influence the decisions of
the firms stakeholders in its own favor [62].
According to the assumptions of perfect capital markets, there is complete agreement among
investors about probability distributions of future payoffs on assets, and they choose asset holdings
based solely on them [63]. Thus, socially and environmentally responsible investors, who also consider
nonfinancial criteria in their investment decisions, do not get utility beyond the utility derived from
relying only on financial characteristics (risk and return). Fama and French [64] show that in the
presence of market imperfections, tastes for assets as consumption goods can affect asset prices, and
the distortions of expected returns (i.e., deviations from traditional asset pricing models) can be large
when investors with a taste for assets (i.e., using a firms environmental and social performance as
a selection criterion for portfolio construction) account for a substantial amount of invested wealth.
If so, investment decisions based on corporate sustainability can provide additional gains to investors
who do not base their decisions solely on monetary returns. Thus, the adoption of the CS concept can
influence stock market performance and its volatility.
Existing theoretical models of the relationship between corporate social performance and
stock market returns relax the assumption of perfect capital markets by allowing differences in
investor preferences [6467], incomplete information [68,69] and imperfect markets in general [70,71].
Sustainability-oriented investors, who consider both financial and non-financial criteria in their
investment decisions, can get utility above that traditional investors achieve by basing their choices
solely on financial criteria. Therefore, management of social, environmental, and financial issues
and its voluntary disclosure in the form of self-generated, stakeholder engaged, and independently
verified reporting can be positively priced in financial markets. If CS affects company performance,
and this relationship is fully incorporated by the market, then a stock price should quickly adjust to a
relevant change in the corporate management and business strategy. This is highly unlikely because
the implementation of sustainability at the micro level requires a systematic and long-term approach,
and expected stock returns would not only be affected within the event window. As such, realized
returns on the stock would differ systematically from equivalent securities. All of the above arguments
can be summarized in the following hypothesis:
Hypothesis 1: Companies with CS earn higher than average stock market returns.
Business strategy that incorporates social, environmental, and economic issues at the same
time and proper voluntary reporting can lead to reductions of the operational and financial risks
a company faces. It can also promote more conservative risk behavior in group decision making [72].
Suitable corporate sustainable performance may be considered as a sign of superior management skills
and more effective business and financial planning [73]. Improved environmental, social, and financial
risk management reduces the probability of sustainable crisis that could negatively affect a firms
expected cash flows (e.g., lawsuits, cleanup costs in the case of environmental accidents, consumer
boycotts, employee strikes over unsafe working conditions, potential fines, loss of reputation, and
NGOs attacks) and can generate additional capital or goodwill, which mitigates possible negative
assessments of future corporate actions [57,74]. A companys intensified internal efforts and responses
to sustainability issues can also improve organizational information flow [75] and equip firms that have
greater capabilities in implementing sustainable processes with the tools necessary to reap additional
benefits accruing from the adoption of best practices [76]. All of these beneficial implications, due to
their link to qualitative risk categories, can lead to more stable cash flows and a substantial reduction in
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the costs of potential financial distress. Thus, a firm with balanced financial, social, and environmental
activities and stakeholder engaged voluntary reporting is likely to achieve lower volatility on stock
returns than other companies. This leads to our second hypothesis:
Hypothesis 2: The relation between corporate sustainability and stock return volatility is negative
and substantial.
Periods of high risk aversion and low risk premium are generally associated with times of financial
distress and high market volatilityperiods of economic contractions and substantial decreases in
consumption levels [7779]. Investors then direct more attention towards companies with sound
environmental, social, and financial management. This makes sustainable firms stocks highly desirable
investment assets during turmoil in financial markets, because of their relatively better image and
more stable future prospects. This leads to excess demand for financially, socially, and environmentally
responsible stocks and a deficit demand for financially, socially, and environmentally irresponsible
stocks [80]. In turn, although investment in sustainable companies should not exhibit any anti-cyclical
patterns within the usual stock market cycle, the implementation of CS into corporate strategy should
lead to greater resistance to economic crisis and wealth-protective effects that are captured in the
corporations stock market valuations. The above arguments lead to our third hypothesis:
Hypothesis 3: Companies with CS are characterized by a higher than average resistance to a stock
market crash.

4. Method
Information about social and environmental companies activities has been derived from
voluntary disclosures submitted on companies Internet websites. Voluntary disclosures are defined
here as pieces of information outside and beyond the mandatory requirements [81]. The literature
describes two main approaches to the content analysis of environmental and social reporting:
mechanistic and interpretative.
Mechanistic approaches typically focus on word counting [77], sentence counting [82], page
proportions [83], frequency of disclosure [84], and high/low disclosure ratings [85]. Interpretative
studies focus on quality and content richness. Their main aim is to understand and interpret contained
information [86] and its effects on readers [87].
In this paper, a combination of the mechanistic and interpretive approaches has been applied.
On the one side, the paper has considered the frequency and regularity of voluntary disclosures in the
form of environmental and social reports. On the other side, we have conducted deep content analysis
of all information, according to the interpretive approach.

4.1. Measuring Social Aspects of Corporate Sustainability

The management literature has acknowledged social responsibility as an important corporate
duty for a long time [88,89]. CSR generally refers to the firms consideration of, and response to,
issues beyond the narrow economic, technical, and legal requirements of the firm . . . in a manner that
will accomplish social benefits along with the traditional economic gains which the firms seeks [90]
(pp. 312313). If so, the companys CSR activities should be strategic and embrace a wide range
of simultaneous activities in different areas (e.g., community, diversity, employee relations, product
design, human rights, corporate governance), which support the firms competitive advantage [91,92].
Corporate social responsibility concerns the management of a firms internal resources (including
shareholders expectations), which simultaneously contribute to the welfare of other stakeholders.
For CSR to contribute to sustainable development, it must also embrace the companys ability to
sustain desirable financial performance and shareholder value creation processes over the long
term [93]. Thus, CSR that serves sustainability must incorporate externalities and reputational risks
that potentially harm the firms future financial and stock market performance into business strategy
and decision-making processes.
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Integrating sustainability management into social responsibility requires not only an examination
of the impacts of undertaken initiatives on financial outcomes, but also a deep understanding of the
impacts of given products, services, processes, and other activities on both the external and internal
environments [94]. It includes cyclical, long-term, multidimensional actions consistent with the overall
idea of sustainable development that leverage unique resources and expertise and promote a code of
compliance throughout the entire management system and stakeholder dialogue.
In order to meet our criteria of the social aspects of corporate sustainability, a company must have
implemented or achieved the following requirements since 2006:

(1) Integration of social activities into business strategy and decision-making processes. Here,
the robustness of the information provided has been taken into account. The recognized
relationship between internal (companies) and external (stakeholders) values combine and focus
the business-oriented view and stakeholder perspective on social performance [95].
(2) Publishing of profound CSR reports documenting a wide range of activities related to ongoing
social responsibility (in the area of community involvement, social contribution, human resources,
customer relations, corporate governance, and diversity). These reports need to be characterized
by good quality, which means they must contain both numerical and narrative information [96].
Apart from the above, they not only need to contain main objectives (in this case social objectives),
but also activities and strategies to achieve them [97].
(3) Active engagement of independent third party actors in the preparation and verification of CSR
reports. This criterion meets the requirement of verifiable information [98], as well as linkage
of the organizations activities to key social issues with active stakeholder engagement, which
ensure a high quality of voluntary disclosures.
(4) Gaining at least three social responsibility awards given by external institutions and organizations
based on objective and publicly available criteria. Verification and appreciation of voluntary
actions increase its usefulness and its importance for the decision-making process [99].

4.2. Measuring Environmental Aspects of Corporate Sustainability

The ecologisation of a company refers to the inclusion of environmental management in its
operations and strategy. This makes environmental leadership, the implementation of voluntary
eco-efficient practices, and proper external stakeholder management necessary conditions for an
effective pro-environmental strategy [75,100].
Proactive environmental strategies require complex interaction among different skills and
resources [101]. They are intangible managerial innovations and routines requiring organizational
commitment towards preserving the natural environment, and are not required by law [11].
They involve formal systems that integrate procedures, processes, monitoring, and reporting of
environmental performance targeted at minimizing ecological burdens imposed on a firms internal
and external stakeholders [102].
To meet our criteria for including environmental aspects into existing management systems in
terms of procurement, manufacturing, distribution, marketing, service, research and development,
public relations, and infrastructure, a company must have implemented or achieved all of the following
requirements since 2006:

(1) In the area of reporting: regularly issued own-designed environmental reports or reports meeting
the requirements of Global Reporting Initiative (GRI) guidelines. An appropriate, reliable and
standardized system of environmental control, along with a modern cost-accounting system, is
essential to calculate the quantitative effects of implementing various environmental business
activities [39].
(2) In the area of procurement, manufacturing, distribution, research and development, and service:
an environmental management system (EMS) designed at the whim of the organizations
management or developed in line with the established voluntary guidelines of the International
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Organization for Standardization (ISO) 14001 standard. EMS implementation shows that
environmental issues are an important part of day-to-day business, and operations are conducted
in a way that reduces their potentially negative environmental impact [103].
(3) In the area of infrastructure: Leadership in Energy and Environmental Design (LEED) certification
of any kind of at least one of its buildings. Green building demonstrates a companys commitment
to more efficient use of resources and the provision of a conductive indoor environmental quality
for its occupants [104].
(4) In the area of public relations and marketing: attaining at least three environmental awards
granted by third parties and based on specified and publicly accessible criteria that instruct the
destination managers which environmental obligations must be fulfilled. Verifiable information
not only improves the quality of environmental voluntary disclosures [98], but also ensures a
higher level of precision, relevance, and usefulness for decision makers [99].

4.3. Measuring Financial Aspects of Corporate Sustainability

Companies experiencing an excessively fast or negative growth of assets or revenues are usually
characterized by greater financial risk through the liquidity effect [105]. The former have fewer
discretionary funds available to finance growth, so they are more likely to rely on more expensive
external sources of financing. The latter can experience a higher probability of bankruptcy and lower
general ability to raise funds. The trade-offs between more growth and higher financial risk might also
negatively affect internal corporate governance stability [106].
Cui et al. [107] examined the relationship between corporate growth and financial risk and found
that the probability that a company will experience financial distress increases dramatically when its
growth rate is excessive. The authors also report an insignificant relationship between the probability
of financial distress and the real growth rate of non-excessively growing companies.
We interpret sustainability in finance as the autonomy of the growth of the firm. It is strictly
connected with the mutual compatibility between growth objectives and established operating and
financial policies in the long run. To test the above-mentioned consistency, we introduce the concept of
the sustainable rate of growth g*, which is calculated using the following formula [108]:

g pm at f l err (1)

where: pm : profit margin (net income after tax/revenue), at : asset turnover (revenue/assets), fl : financial
leverage (assets/equity), and err : earnings retention ratio (net income after taxdividends plus
buybacks/net income after tax).
The sustainable rate of growth formula is based on beginning of the year equity and assets.
It shows the maximum rate of growth of revenue (or assets) that the company can finance internally,
without changing the financial leverage ratio and acquiring additional internal equity capital.
The situation in which a company permanently over performs its sustainable rate of growth
shows that the given entity does not provide enough capital to ensure financing of investment needs.
If the actual growth rate underperforms the sustainable growth rate in the longer-term perspective, the
company has more than enough capital to meet its investment needs. The former is much more difficult
to deal with, and requires a more sophisticated approach (i.e., reducing dividends, improving operating
performance, increasing leverage, new equity increases or actual growth rate reductions); however, the
latter should also be considered as a challenge connected with the obligation to determine a proper
way to use excess cash (i.e., new value-creating investment expenditures, mergers and acquisitions,
common share repurchases, and increase in dividends). Only growth paths that are balanced with a
corporations operating and financial policies will enable the firm to sustain its market position in the
longer-term perspective.
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5. Data and Sample Selection

Our initial sample consists of all the companies listed in the FTSE 350 index, which includes 350
of the largest companies by capitalization with a primary listing on the London Stock Exchange (LSE).
This translates into a panel data set of 29,400 firm-month observations from 2006 to 2012. We obtain
detailed balance sheets, income statements, and cash flow statements for the above-mentioned firms
from the Infinancials (INF) database, which served as our main financial data source. A supplementary
source from which missing data were derived was the Yahoo Finance Web site. All social and
environmental performance data have been retrieved from content analysis of annual CSR reports,
environmental reports, public documents, corporate Web sites, and evaluations of corporate social
responsibility from knowledgeable external sources.
For each of these companies, we measured the adoption of the corporate sustainability concept
into business strategy and operations with the Corporate Sustainability Index (CSI). The construction
of the index was based on the work by Tagesson et al. [109]. CSI was defined as a sum of nine binary
variables, which valued 1 if the relevant disclosure criterion was satisfied and 0 if otherwise:


CSI Xi (2)

where: X1social activities in business strategy and decision-making process, X2CSR reports,
X3independent third-party actors in the preparation and verification of CSR reports, X4at
least three external social responsibility awards, X5environmental reports, X6environmental
management system, X7Leadership in Energy and Environmental Design (LEED) certification ,
X8at least three external environmental awards, and X9financial sustainability.
There are numerous rating agencies and other sources that provide independent social
performance evaluations (e.g., MSCI ESG STATS, Innovest, Vigeo, Ethical Investment Research
Information Service (EIRIS), and Canadian Social Investment Database (CSID)). Many researchers
used measurers constructed by the above entities in their analyses of relations between various aspects
of corporate social and financial performance [28,110112].
Although corporate responsibility measures provided by social monitors are very popular in
the academic literature, they have many drawbacks. As Fombrun [113] points out, the surveys
and used criteria are either biased in both the companies they rate and the respondents they
survey. Furthermore, the used criteria are not systematically articulated. As the result, any possible
generalization is problematic. The main specific weaknesses mentioned by some authors are the
following [110,111,113,114]: KLD completely excludes companies with poor environmental records;
Innovest combines more than 120 and EIRIS over 300 performance indicators which makes them highly
complicated and difficult to implement and understand; Vigeos rating system is not fully credible on
the criteria of objectivity and transparency; and CSID focuses solely on the Canadian stock exchange,
which significantly limits its geographic scope.
Our CSI index is designed to embrace a variety of different perspectives with the use of a variety of
different measures [115]. The biggest advantage of the proposed measure, which uses binary variables,
is its parsimonious character, which allows easy application and replication. All data necessary to
construct CSI index can be easily and freely obtained from publicly available sources (contrary to
expensive, private databases). Although this method does not capture incremental differences across
different dimensions of sustainability, it is much better suited for the purpose of our research than
the usage of continuous variables. Firstly, we want to select the sample of sustainable companies and
not distinguish between top and bottom performers in the above area. Secondly, comparison of the
rates of returns on different portfolios requires clear division of analyzed companies into sub-samples,
which makes the implementation of binary variables necessary.
From the original list of 350 companies, we first restricted our sample to 207, which met first four
criteria that constituted our CSI (X1 to X4). Secondly, we further reduced the number to 141 entities that
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also met second four criteria of corporate sustainability index (X5 to X8). Finally, we reduced the sample
to 65 firms that were also able to meet last CSI criterion (X9)were able to achieve mutual compatibility
between growth objectives and established operating and financial policies in the long run. In order
to meet this goal of financial sustainability, the companys average annual difference between the
real rate of revenue growth and the sustainable growth rate, determined by using Formula (1), did
not exceed plus and minus 10% in the years of 20062012 (For the whole sample of 350 companies
171 under- and 179 over-performed their sustainable rate of growth, with a Chi-square statistic for
the above distribution of 5.70, showing that those firms were equal in frequency at the 0.05 level).
Firms eliminated from the sample at this stage were equally distributed between those under- and
over-performing its g* and different industries, and thus did not create a bias.
Table 1 illustrates the sample of 65 firms that adopted CS concept into business strategy and
operations (with the value of CSI equal to 9) distribution by industry affiliation. The sectors of
industrials, financials, consumer discretionary, and consumer staples are most strongly represented in
the sample of sustainable companies, while the telecommunication services, materials, and utilities
sectors are not well represented. The health care sector is not represented at all. Overall, our
sample of sustainable corporations is not concentrated only in the sectors generally acknowledged as
dirtiercharacterized by high negative environmental impact and high capital intensity.

Table 1. Distribution of sustainable companies by Global Industry Classification Standard

(GICS) sectors.

FTSE 350 Percentage of All 65 Sampled Percentage

GICS Sector
Companies FTSE 350 Companies Companies of Sample
Consumer Discretionary 68 19.40% 10 15.40%
Consumer Staples 26 7.40% 7 10.80%
Energy 15 4.30% 5 7.70%
Financials 111 31.70% 11 16.90%
Health Care 9 2.60% 0 0.00%
Industrials 53 15.10% 17 26.20%
Information Technology 24 6.90% 6 9.20%
Materials 25 7.10% 3 4.60%
Telecommunications Services 7 2.00% 2 3.10%
Utilities 12 3.40% 4 6.20%

Table 2 presents a summary of selected statistics for our samples of sustainable corporations
and other companies listed in the FTSE 350 index, which did not meet our CS criteria. Several
features are worth noting. Firms that adopted sustainability into their business strategies and
decision-making processes are generally much larger than other companies when it comes to the
book value of their assets. This suggests that larger publicly listed firms exhibit higher probability
of socially, environmentally, and financially responsible behavior than smaller publicly listed firms.
Compared with unsustainable firms, the growth paths of sustainable firms were much more balanced
with their operating and financial policies. The average difference between real rate of growth of
revenues and sustainable rate of growth for the latter in the years 20062012 was very slight (with
31 firms underperforming and 34 over-performing their g*), while for the former it exceeded 8.4%
(140 underperforming and 145 over-performing their g*). Corporations that implemented CS had
significantly higher Tobins q indicators (measured as total book value of assets minus book value of
equity plus market value of equity over book value of assets) than their unsustainable counterparts,
suggesting that firms with better performance are generally more active in sustainable-oriented
activities. Our data also confirm that unsustainable corporations were characterized by lower dividend
yields, higher research and development (R&D) intensity, and higher systematic risk (measured by
levered beta). They also had significantly higher ownership concentration ratios, which may suggest
they are less plausible to serve their stakeholders than sustainable corporations.
Sustainability 2016, 8, 276 11 of 22

Table 2. Summary statistics.

A: Sustainable B: Unsustainable
Full sample (N = 350) Test of Difference (A-B)
Category Companies (N = 65) Companies (N = 285)
Mean Median Mean Median Mean Median Mean Median
Total asset (thousands of GBP) 30,944,286 1,391,000 74,285,653 3,000,800 20,591,025 1,177,396 53,694,628 *** 1,823,405 ***
Rate of growth of revenue 0.194 0.077 0.087 0.066 0.229 0.083 0.142 *** 0.017 ***
Sustainable rate of growth of revenue 0.133 0.100 0.087 0.089 0.145 0.100 0.057 * 0.011
Retention ratio 0.747 0.736 0.618 0.595 0.779 0.797 0.161 *** 0.202 ***
Free cash flow (thousands of GBP) 145,943,238 37,522,500 182,068,288 57,800,000 135,867,900 33,250,000 46,200,388 * 24,550,000 *
R&D to sales ratio 0.016 0.010 0.008 0.008 0.018 0.015 0.011 *** 0.006 ***
Levered beta 1.009 0.960 1.000 0.939 1.019 0.981 0.019 0.042
Tobins q 1.557 1.269 1.582 1.315 1.447 1.250 0.135 *** 0.065 ***
Concentration of shareholdings
0.272 0.099 0.118 0.069 0.306 0.117 0.189 *** 0.047 ***
(fraction owned by the five largest shareholders)
* and *** denote significance at the 10% and 1% level, respectively.
Sustainability 2016, 8, 276 12 of 22

6. Empirical Results

6.1. Corporate Sustainability and Returns

In this subsection, we examine the relationship between the implementation of corporate
sustainability and subsequent returns. This will enable us to empirically test the two competing
views on CS issues incorporation into investment decisionsthe stakeholder value maximization
view and the shareholder expense view. According to the former, the above activities have a
positive effect on shareholder wealth because focusing on the interests of stakeholders increases their
willingness to support a firms operations, which increases shareholder wealth. According to the latter,
concentration on CS issues has a negative effect on shareholder wealth because of overinvestment of
productive resources on unprofitable projects connected with social and environmental responsibility.
CS implementation at the micro level requires a holistic and long-term approach and should affect
stock prices long after the given event window. If so, returns realized on sustainable companies
portfolios would differ systematically from equivalent securities.
We first compare the long-term stock returns on equally weighted portfolios of companies with
CS and all FTSE 350 index constituents for each calendar month from 2006 to 2012. We keep these
firms in the above portfolios for the whole period of 84 months. An investment of $1 in the portfolio
of companies with CS on 1 January 2006, when our data began, would have grown to $1.63 by
31 December 2012. In contrast, a $1 investment in the FTSE 350 index constituents would have grown
to $1.09 over the same period. This is equivalent to annualized returns of 7.18% for the sustainable
portfolio and 1.24% for the market portfolio, a difference of more than 5.94% annually. In order to find
out how much of the above-mentioned disparity in performance was driven by differences in the level
of systematic risk or sensitivity to size, book-to-market value of equity, and immediate past returns
factors of the two portfolios, we regressed excesses returns on the four factors from Carharts [116]
model, given by the following equation:

Rit R f t i ` i RMRFt ` i SMBt ` i HMLt ` i U MDt ` it (3)

where Rit R f t is the excess return from the risk-free rate of the sustainable companies portfolio in
month t, RMRFt is the market excess return in month t, SMBt is the difference between the returns on
portfolios of small and big capitalization stocks for month t, HMLt is the difference between the
returns on portfolios of high and low book-to-market stocks for month t, UMDt is the difference
between the returns on portfolios of high and low prior return stocks for month t, and it is the
stochastic error. We interpret i as the abnormal return in excess of what could have been achieved by
passive investments.
Panel A of Table 3 reports the long-term abnormal stock returns of the equally weighted
sustainable corporations portfolio. As hypothesized, the portfolio of companies with CS generates
significant returns over the stock market portfolio. The alpha parameter is 0.35% monthly (4.25%
annually). To ensure that any outperformance of the sustainable companies portfolio does not result
from industry affiliation factors (sector specific risks and returns) we also calculated Rit R f t after
controlling for industry using the 10 Global Industry Classification Standard (GICS) sectors, among
which FTSE 350 companies were distributed. The alpha parameter after controlling for industries was
0.28% monthly (3.61% annually). The above results are presented in Panel B of Table 3.
Next, we compare the long-term stock returns on value-weighted portfolios of companies with CS
and all FTSE 350 index constituents. We do so to eliminate possible anomalies connected with the share
of tiny stocks in the total amount of stocks and their high possible dispersion of anomaly variables.
An investment of $1 in the portfolio of companies with CS on 1 January 2006 for value-weighted returns
would have grown to $1.48 by 31 December 2012. In contrast, the same investment in the FTSE 350
index constituents would have grown to $1.07 over the same period. This is equivalent to annualized
Sustainability 2016, 8, 276 13 of 22

returns of 5.73% for the sustainable portfolio and 0.98% for the market portfolio, a difference of more
than 4.75% annually.

Table 3. Performance-attribution regressions for sustainable companies portfolio (equally weighted).

Panel A: Excess Returns Over Market Portfolio

0.0035 * 0.3082 *** 0.2240 *** 0.0073 0.0014
(0.0027) (0.0818) (0.0728) (0.0446) (0.0638)
Adjusted R2 = 0.610535
Panel B: Excess return over industry
0.0028 *** 0.1873 *** 0.2189 *** 0.0186 *** 0.0009
(0.0012) (0.0634) (0.0813) (0.0031) (0.0526)
Adjusted R2 = 0.634672
* and *** denote significance at the 10% and 1% level, respectively. We estimate four-factor regressions
(Equation (3) from the text) of monthly returns for portfolio of sustainable companies. The table contains the
results of investment strategy that bought firms with CS. The explanatory variables are RMRF, SMB, HML,
and UMD. These variables are the returns to zero-investment portfolios designed to capture market, size,
book-to-market, and momentum effects, respectively. The sample period is from 1 January 2006 through
31 December 2012. Standard errors are reported in parentheses.

We then re-estimate the regressions for the four Carhart [116] factors using the value-weighted
portfolios. Panels A and B of Table 4 report the results. We find that in this case the portfolio of
companies with CS also exhibits significant positive abnormal returns in comparison with the market
portfolio. For value-weighted returns, the alpha parameter is 0.29% monthly (3.54% annually), and
0.25% monthly (2.98% annually) after controlling for industry affiliation.

Table 4. Performance-attribution regressions for sustainable companies portfolio (value weighted).

Panel A: Excess Returns Over Market Portfolio

0.0029 *** 0.7285 *** 0.8674 *** 0.2811 ** 0.1035
(0.0004) (0.0929) (0.1337) (0.1393) (0.0787)
Adjusted R2 = 0.571642
Panel B: Excess return over industry
0.0025 *** 0.2423 *** 0.7798 *** 0.0116 *** 0.1214 *
(0.0010) (0.0714) (0.1603) (0.0038) (0.066)
Adjusted R2 = 0.583457
*, ** and *** denote significance at the 10%, 5% and 1% level, respectively. We estimate four-factor regressions
(Equation (3) from the text) of monthly returns for portfolio of sustainable companies. The table contains the
results of investment strategy that bought firms with CS. The explanatory variables are RMRF, SMB, HML,
and UMD. These variables are the returns to zero-investment portfolios designed to capture market, size,
book-to-market, and momentum effects, respectively. The sample period is from 1 January 2006 through
31 December 2012. Standard errors are reported in parentheses.

All the results of the above subsection are statistically and economically significant, confirming our
hypothesis that companies that adopt sustainability into their business strategies and decision-making
processes earn higher than average stock market returns.

6.2. Corporate Sustainability and Stock Return Volatility

This papers hypothesis is that firms with balanced financial, social, and environmental activities
and its voluntary, stakeholder engaged, disclosure are likely to experience lower volatility on stock
Sustainability 2016, 8, 276 14 of 22

returns than other companies. To provide direct evidence on this channel, we use the annual standard
deviation from monthly stock returns over the years 20062012. Table 5 reports the descriptive statistics
of the above risk measures for both equally (Panel A) and value weighted (Panel B) sustainable
corporations and market portfolios.

Table 5. Descriptive statistics of the annual standard deviations from the monthly stock returns between
2006 and 2012.

Portfolio Mean Median SD Min Max Kurtosis Skewness

Panel A: Equally weighted portfolios
Sustainable companies 0.075 0.068 0.025 0.042 0.162 2.458 1.540
Market portfolio 0.090 0.080 0.033 0.055 0.250 5.932 2.126
Panel B: Value weighted portfolios
Sustainable companies 0.029 0.024 0.015 0.019 0.083 1.602 1.234
Market portfolio 0.082 0.074 0.043 0.030 0.287 5.458 1.836

The results reveal a substantial and negative relationship between corporate sustainability and
stock return volatility. Several values of the distributions of annual standard deviation from monthly
stock returns for the entire stock market portfolio are often two times, or more, greater than those
estimated for sustainable companies portfolio. For example, the mean standard deviation from the
monthly stock returns over the sample period for firms with CS was 20% lower for equally weighted
samples and almost three times lower for value-weighted samples. The skewness coefficients were,
respectively, 38% and 49% lower, indicating that distribution of stock price volatility was more skewed
to the positive side for the stock market portfolio during the period analyzed. Finally, the kurtosis
coefficient, which is a measure of the thickness of the tails of the distribution, was 2.4, for equally
weighted samples, and 3.4 times, for value-weighted samples, lower for the sustainable companies
portfolio. This indicates that there were much fewer outliers among the firms with balanced financial,
social, and environmental activities with its voluntary, stakeholder engaged, disclosures. We also
find that sustainable companies tend to have lower monthly return volatility amplitude and lower
dispersion, measured by the coefficient of variation, than similar volatilities for the FTSE 350 index.

6.3. Corporate Sustainability and Stock Market Crash Resistance

Measuring features of stock market cycles for sustainable corporations is of potential interest for
both investors and managers. If the adoption of corporate sustainability into business strategy and
decision-making process is characterized by higher than average resistance to general swings in stock
market prices, then the integration of financial objectives with restrictions on environmental and social
issues into investment practices can have a positive impact in terms of shareholders risk-adjusted
financial returns. This issue is particularly pronounced in times of current financial turmoil caused by
the financial crisis of 2007.
In this section, we examine the selected characteristics of the CS portfolio within stock market
cycles. We use average monthly data on stock returns for equally and value-weighted portfolios of
sustainable corporations and FTSE 350 index constituents from 1 January 2006 to 31 December 2015.
We do so to assess the possible importance of corporate sustainability as a factor diminishing
investment risk in times of economic and financial turbulence. Although we explicitly focused
all of our previous calculations on the period of the recent global financial crisis (years 20062012),
we decided to include three additional years here in order to ensure that reported regularities are
more systematic and not solely characteristic for recession and recovery periods. The average monthly
returns for both portfolios for the years 20062015 are illustrated in Figures 1 and 2.
Sustainability 2016, 8, 276
Sustainability2016,8,276 15 of 22
Sustainability2016,8,276 15of21

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0.01 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sustainable FTSE350index
Sustainable FTSE350index
Figure 1. Average monthly returns for sustainable corporations and FTSE 350 constituents portfolios,
20062015 (equally weighted).

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0.01 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0.05 Sustainable FTSE350index
Sustainable FTSE350index
Figure 2. Average monthly returns for sustainable corporations and FTSE 350 constituents portfolios,
20062015 (value weighted).

Figures 1 and 2 clearly show that the spread between the rate of return on the sustainable
Figures 1 and
Figures 2 clearly
1 and show
2 clearly show that
spread between therate
between the rateofof return
return onon
thethe sustainable
corporations and stock market portfolios jumped in the period immediately following the 20072008
subprime mortgage financial crisis, which led to the recent global economic downturn, for both
sub-prime mortgage
mortgage financial
financial crisis,
crisis, which which
led toled torecent
the the recent global
global economic
economic downturn,
downturn, for for
both both
equally and valueweighted data. We also see that investment in sustainable companies is more
equally and
and value-weighted valueweighted data.
data.meltdownsin We
We also see 2008 also see that
that investment investment
ingroups in
is in
moreis more
resistant to economic and 2011 both experienced declines average
resistant to economic meltdownsin 2008 and 2011 both groups experienced declines in average
to economic meltdownsin 2008 and 2011 both groups experienced declines in average monthly
returns, however,
constantly this declinemarket
outperformed was much lower
portfolio for the
since the portfolio
beginningof offirms with recovery
economic CS. It also inconstantly
constantly outperformed market portfolio since the beginning of economic recovery in 2013.
outperformed market portfolio since the beginning of economic recovery in 2013. Furthermore,
the observed since the beginning of the global ofeconomic crisis. This indicatesincreased
that more market
significantly sincein
surplus the
the stock performance
beginning of the global the sustainable
economic companies
crisis. This indicates that moresignificantly
the beginning started
of thetoglobal
pay close attention
economic to companies
crisis. This longterm
indicates that more
participants started to pay close attention to companies longterm environmental,
market social, and
participants started
social, and
financial policies, and its proper voluntary reporting and sustainable investment practices gained
to pay close attention
financial to companies
policies, and long-term
its proper voluntary environmental,
reporting social,investment
and sustainable and financial policies,
practices and its
proper voluntary reporting and sustainable investment practices gained increasing importance in
capital Tofurthertesttheabnormalperformanceofequitiesinthesustainablecorporationsportfolio
To further test the abnormal performance of equities in the sustainable corporations portfolio
compared to the market portfolio during the stock market cycle, we calculated the annual Penalized
Internal Rate of Return (PIRR) for the former, given by the following equation [117]:
mt r f t
PIRRt t fl t (4)
Sustainability 2016, 8, 276 16 of 22

where t is the average monthly return on a given portfolio in year t, mt is the average monthly
return on the market portfolio in year t, r f t is the monthly return on a risk-free asset for year t,
mt is the standard deviation of the rate of return on the market portfolio for year t, and t is the
standard deviation of the rate of return on the given portfolio for year t. We interpret PIRRt as the
reward-to-variability performance measure for total risk.
Table 6 reports PIRRt differences between sustainable corporations and FTSE 350 (The PIRR for
the FTSE 350 portfolio is the monthly return on the risk-free asset, as can be obtained from Formula (4).)
portfolios for the equally weighted (Panel A) and value-weighted (Panel B) data over the years
20062015 (We decided to make out of the sample analysis for the years 20132015 in order to further
confirm, that reported pattern of sustainable companies portfolio outperformance in comparison to
the market was still present in the additional period and that benefits of CS are incorporated into
stock prices over the longer run.). Adjusting the equity return for standard deviation in a linear
penalization also shows regularly higher returns for investment in companies with balanced financial,
social, and environmental activities. Moreover, the observed surplus in the reward-to-variability stock
performance of the sustainable companies has increased during the global financial meltdown.

Table 6. Annual Penalized Internal Rate of Return (PIRR) differences between Sustainable Companies
and FTSE 350 portfolio, 20062015.

Panel A: Equally Weighted Portfolio

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average
0.0215 0.0391 0.0402 0.0399 0.0695 0.0648 0.0546 0.0301 0.0227 0.0116 0.0394
Panel B: Value Weighted Portfolio
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average
0.0206 0.0308 0.0344 0.0366 0.0482 0.054 0.0498 0.0264 0.0209 0.0101 0.0332

7. Conclusions
This study investigates the relationship between corporate sustainability and various aspects of
shareholder wealth creation for a panel data sample of FTSE 350 companies between the years 2006 and
2012. Using our CS criteria, which cover all major areas of a companys activities (social, environmental,
and financial) at the same time, we find that sustainable firms generate superior long-term returns
in the times of current global financial crisis, even when controlling for market factor risk, market
capitalization, book-to-market value, immediate past returns, and industry affiliation. These results
suggest that firms that adopt sustainability into their business strategies and decision-making processes
engage in investment activities that enhance their long-term efficiency, which ultimately results in
an overall increase in shareholder wealth and corporate value. The results also imply that corporate
sustainable performance investment screens may improve overall investors returns and lead to clear
utility gains. It seems that CS is incorporated into stock prices gradually over time.
Using various distributions of annual standard deviation from monthly stock returns measurers,
we find that a firms engagement in financially, environmentally, and socially responsible behavior
and voluntary, stakeholder engaged, and independently verified self-reporting on it has a positive
impact on overall risk. It appears that CS is priced by the market and leads to generally higher levels
of stock price volatility for companies that do not incorporate sustainability issues into their business
operations. These findings imply that the market incorporates for firms with CS, at least to some extent,
superior management skills and more effective business and financial planning into stocks valuations.
We also find that investment in companies with CS not only generates higher returns during the
peak phase, but also diminishes shareholders losses during the stock market crash. It shows that the
importance of CS generally becomes more pronounced among investors, regardless of the current
stock market phase. However, the wealth-protective effects of corporate sustainability have become
more pivotal since the beginning of the current turmoil in financial markets, which started after the
Sustainability 2016, 8, 276 17 of 22

U.S. sub-prime mortgage financial crisis of 20072008. This makes the economic crisis of 2007 a turning
point for closer integration of investors financial objectives, with restrictions on financial, ecological,
and social issues, as well as its proper, voluntary reporting.
The results of this paper are consistent with the stakeholder value maximization view of a
firms socially, environmentally, and financially responsible activities. They can have important
implications for investors and corporate managers. As for investors, our results should facilitate
portfolio construction by taking additional sustainability-oriented dimensions into account. As for
firm managers, our results should facilitate strategic business decisions oriented at maximization of
stakeholder value by implementing a proper combination of sustainability-oriented activities and
stakeholder engaged, independently verified self-reporting.
The chosen methodology has some limitations. Our sample was restricted to the British
financial market. Therefore, conclusions should not automatically be generalized to other markets.
Our studys implications for abnormal returns and stock price volatility are unclear. The observed
wealth-generating effects of CS assumed weak prediction in that area by the market. If CS screening
becomes common practice, there is no reason to expect substantial abnormal long-term returns from its
implementation. In addition, we analyzed only a selected group of financial, social, and environmental
activity aspects. Hence, it is possible that our results are driven by some unobservable or unconsidered
company characteristics. These multiple possible causal explanations have different corporate policy
and investment strategy implications and stand as a challenge for future research. It might also be
fruitful for future research to examine the CS-risk relation using other measures and to extend our
study to non-British firms and different periods.

Acknowledgments: The authors would like to thank the editor and the reviewers for their valuable comments on
earlier versions of this paper.
Author Contributions: All authors contributed to each section of the article equally.
Conflicts of Interest: The authors declare no conflict of interest.

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